Report of unsubstantiated rumours of Deutsche Telekom interest in a BT bid prompts further round of speculation.

Höttges downplays prospect, but positive on BT recovery potential.

November 2018 saw a flurry of reports that Deutsche Telekom (DT) was considering raising its existing stake in BT and potentially launching a takeover of its British peer.

The latest round of BT-DT rumours originated in the Financial Times (FT) with an Alphaville live market report citing comments from several unnamed sources discussing rumours circulating in the “darker corners of the market” that suggested DT was holding talks with advisors regarding a full takeover of BT Group. Discussions were said to have taken place “very recently” between the two telco groups.

The Alphaville feed was very clear that the foundations for the rumours appeared shaky at best, but reported the widely circulating rumours “only seeking to let sunlight be the disinfectant”.

The future direction of BT is subject to considerable speculation generally at the moment, linked to the imminent arrival of outgoing Worldpay co-Chief Executive Philip Jansen as its new Group Chief Executive. The future of BT’s infrastructure arm Openreach has been under close scrutiny in particular. The official BT line is that Jansen will be pursuing the gist of BT’s recently laid out transformation plan which is built on Openreach remaining within the Group, although fresh thinking on BT’s future can obviously not be ruled out. DT has backed that plan (Deutsche Telekomwatch, #74).

BT down the list of DT global domination plans…

Responding to a question during DT’s latest results conference call on the prospect of DT raising its stake in BT, Timotheus Höttges joked that acquisition plans were somewhere down the list of DT ambitions, below takeovers of Orange, KPN Group, and TeliaSonera.

Höttges suggested that he should not comment on the question in earnest, as it was policy not to respond to M&A-related questions. However, with BT a strategic investment and “part of our pension stock here” (Deutsche Telekomwatch, #71) he did have positive remarks to make on the transformation work that the UK incumbent is undertaking. The scope of the BT recovery plan was described as “quite impressive” and he anticipated an uptick in its valuation in the future, but stressed that “we are not in a phase of upgrading or improving our stake here”.

Changes for the future were not ruled out, though – once the new BT chief executive is in place, if the targeted improvements in business performance come to fruition, and should the UK regulatory environment become more amenable, “then we discuss further”, said Höttges.

More BT-DT speculation appears inevitable in the coming weeks, as the Group nears late-January 2019’s expiry of a standstill arrangement on its 12% BT stake.

Deutsche Telekomwatch’s sibling, BTwatchconsiders a foreign takeover of BT in the near-future to be highly unlikely, not least due to UK political sensitivities, but with a stake-increase feasible. While BTwatch sees DT as considered rather than nimble in its opportunism, DT could deftly exploit current corporate and national vulnerability to grow its BT stake comparatively cheaply, and to secure greater commitment to partner in strategic areas such as infrastructure and service innovation, enterprise, procurement, content, and international cooperation — all under the guise of placing a generous ‘vote of faith’ in both BT and the UK. DT did not, however, swoop in 2012-13 to exploit the crisis in Greece, to raise its stake in OTE cheaply (a near-90% discount at lows), although the local situation may have been riskier due to Germany being widely damned by locals for being considered part of a ‘troika’ bullying Greece, thus potentially tarring DT as a ‘bad actor’.